European Parliament Cancels CAI Meeting, Threatens Deal Signing Delay

EU businesses to take hit if deal is shelved

By GT staff reporters

Mar 24, 2021 11:26 PM

China EU Photo:VCG

Amid sanctions and countermeasures as well as a strong exchange of words, China's relationship with the EU seems to be sliding into an iteration of white-hot confrontation reminiscent of that between China and the US. Is this a depiction of the true China-EU relations?

A rather intriguing occurrence could perhaps offer an answer. The Global Times learned that a seminar via Zoom on Wednesday, attended by Maria Martin-Prat, the EU's lead investment negotiator, and Xia Xiang, minister-counselor for economic and commercial affairs of the Chinese Mission to the EU, was surrounded by a placid atmosphere, with both sides still focusing on specific efforts to set the bilateral investment deal in motion.

China-EU ties are at their toughest moment in over a decade. The EU's strategic sober-mindedness in its China policy that prioritizes economic and trade closeness, coming into being after repeated setbacks, is now under external pressure and falling into the temptation of outsiders.

Observers said the EU's temporary wavering and entanglement can be understood, but it's of utmost urgency for the EU to return to its China strategy that has proven to be successful over the past decade.

They also believe that those holding ideological prejudices in the European Parliament would ultimately lose ground to the prevailing trend within the bloc that advocates for cooperation to fit into the actual development needs.

The European Parliament canceled a meeting scheduled for Tuesday to discuss the comprehensive agreement on investment (CAI) with China, a move believed to be protesting against Beijing's tit-for-tat countermeasures targeting EU sanctions over Xinjiang affairs, media reported.

Considering the EU's fresh move as walking a tightrope that serves neither side's interest, observers think trade relations might suffer from the possibility of a postponed deal signing, a scenario that could deal a blow especially to EU vehicle manufacturers, among the continent's businesses hinging on the Chinese market for growth.  

In response to a question about the canceled meeting, Chinese Foreign Ministry spokesperson Hua Chunying said Wednesday that the China-EU CAI is not a gift bestowed upon one side by the other side, but is mutually beneficial and reciprocal.

The two sides concluded the seven-year negotiations over the CAI at the end of 2020 and the EU has said it wants the ratification process to be completed by 2022. The EU's recent hostile moves, however, are considered to have sown uncertainty over the deal signing.

The meeting cancelation came on the heels of China's Monday announcement of sanctions on 10 individuals and four entities from the EU that have spread rumors and lies about Northwest China's Xinjiang Uygur Autonomous Region, in a hit-back against EU's punitive measures on four Chinese nationals and one entity over alleged human rights abuses.

Among the 10 individuals sanctioned are members of the European Parliament, including Reinhard Bütikofer, chair of the European Parliament's delegation for relations with China, and Michael Gahler, chair of the European Parliament-Taiwan Friendship Group.

Soon after Beijing's countermeasures were announced, the Socialists and Democrats (S&D) - the second-largest grouping of lawmakers in the European Parliament - said they would not engage in any talks on the CAI until the measures are lifted.

"One possibility is that the S&D is merely taking a stand as no one in this party is on China's sanction list, which covers people from almost all major parties in the European Parliament," Cui Hongjian, director of the Department of European Studies, China Institute of International Studies, told the Global Times on Wednesday.

Whether the S&D's proposal will be passed in the parliament depends on whether other major parties agree to it, said Cui, noting that if the party forms its proposal as a bill, hands it to parliament and gains the approval of over half of the parliament, the situation will be difficult. "If signing the investment treaty is to be halted, China-EU ties will suffer a significant blow," Cui remarked.

Still, that's not yet the case that the EU has become universally militant when it comes to the CAI talks.

Mei Xinyu, a research fellow with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, attended the seminar via Zoom on Wednesday hosted by the China Chamber of Commerce to the EU, where the EU's chief investment negotiator and the minister-counselor for economic and commercial affairs in the Chinese Mission to the EU delivered the keynote speeches. 

According to Mei, the atmosphere in this seminar was not affected by the recent tit-for-tat sanctions between the two sides. And they discussed topics related to the China-EU investment treaty.

Mei is optimistic about the treaty being signed as scheduled. Trade groups from both sides are looking forward to the signing of the treaty, said Mei, noting that they are willing to engage in trade cooperation rather than standing against each other.

The next step will be pushing the CAI deal to legally come into force, meaning it has to be approved by China as well as the 27 EU member countries unanimously, according to Eddie Chen, managing director and head of China and Asia Eurazeo, one of the oldest private equity firms in Europe.

Nonetheless, "we all know it's going to be tough," Chen, formerly a senior official with the United Nations Development Program in New York, said in an exclusive interview with the Global Times over the weekend, citing a wavering stance by some EU member states and the repercussions of China-US tensions on the CAI deal.

As Cui pointed out, after Biden took office, he has been sending signals on various occasions, from the Munich Security Conference to the China-US meeting in Anchorage, that the US is back, and the US is going to lead its allies to stand up against China.

The US plan is to lure Europe over on the human rights and security fronts, where the two sides can easily cooperate, while the economic field is where Washington and Brussels are at odds, Cui said. He stressed that "the US plans to put Europe on China on politics and security first, and then extend such conflict to economic cooperation between China and the EU."

Also, "tons of work" are required to define all the legal terms for the sectors covered by the treaty, initially for four sectors - automobiles, healthcare, financial services and cloud computing - according to Chen. "It's less likely to be completed within the year, but possible to be finalized next year."

The current entanglement on Xinjiang affairs is not an issue that implicates the most fundamental interests of the two sides and would eventually be resolved as Xinjiang-related rumormongering fades away, Dong Chengxi, a research fellow with Zhixin Investment Research Institute, told the Global Times on Wednesday.

Dong, a keen follower of the investment deal, said it's possible that the deal will unlikely take effect until 2023. That means the deal might get done one year later than previously expected. 

Deal postponement to hurt EU businesses

Uncertainty over the deal signing would be detrimental to both sides, especially big European firms betting heavily on the Chinese market, regional affairs watchers said.

With the CAI lowering entry barriers for EU businesses exploring opportunities in the Chinese market, particularly in sectors such as healthcare and financial services, the EU is essentially motivated to set the investment treaty in motion, Chen said. 

In an article in Euobserver in late November, Xia, the minister of the Chinese Mission to the EU, wrote that "China's industrial chains and markets have created huge benefits and new sources of growth for European companies."

The EU made up over half of China's imports of vehicles, auto parts and aircraft and accessories in 2019, according to Eurostat.

In a sign of the indispensability of the Chinese market to the auto industry, a pillar part of the European economy, 28.6 percent of new BMW cars were sold in the Chinese market in 2019, making China the largest market for the German automaker for the eighth year in a row. Volkswagen's new car sales in the Chinese market also accounted for nearly 39 percent of its global sales in 2019. 

Also worth noting is that EU businesses have also become increasingly wary of not interfering in China's internal affairs. 

In September, Siemens stated that it always respects China's sovereignty and territorial integrity, and will continue to uphold the "one country, two systems" principle, in the wake of improper remarks made by the company's CEO Joe Kaeser over Hong Kong affairs, which sparked anger among some Chinese web users. 

European business circles have their representatives in parliament and can exert   influence. Yet, the parliament is the major target of China' sanctions. Thus, it has to act tough at this moment, which leaves no room for the business groups to lobby, Cui said. 

"During the examination process of the treaty, the parliament will listen to opinions and advice from the business groups. That's when and how those groups can exert influence."

A postponed deal tends to weigh on China's trade with Europe in new-energy vehicles also, thereby becoming a hindrance to the country's de-carbonization vision, analysts said.